If this can happen to a UK listco, which is part of the Hong Leong Gp, could happen to Sino-E or any other S-Chip that has or had management or corporate governance problems. SIAS and SGX should ask listcos what steps they have taken to prevent sumething similar happening to them in China? FT reports

Millennium & Copthorne, the hotel group, underscored the challenges for western companies operating in China on Monday after it revealed that a former employee at one of its joint ventures there had allegedly sold $48m (£31m) of the venture’s assets without M&C’s permission.

The company said the employee, Cheung Ping Kwong, sold the assets – which included a hotel and development land – in spite of a Chinese newspaper advertisement issued by the joint venture warning that he had been removed from his position at the group and was not authorised to sell the holdings.

Can’t understand why Sino-Environment spends $ on advisers* in connection with the proposed restructuring of the Company’s 4% convertible bonds due 2013 issued in an aggregate principal amountof S$149 million (the “Bonds”) and its debt obligations.

When it terminated nTan Corporate Advisory in March as the independent financial adviser (IFA ) to the Company, the board said, “In line with the Company’s cost-cutting measures, the Company has terminated the appointment of the IFA with effect from 18 February 2010. The Company’s newlyappointed chief executive officer, Mr Sam Chong Keen, will undertake the task of negotiating and liaising with the Company’s bondholders.”

I think the board owes the shareholders an explanation for this change of mind. And I hope SIAS or SGX will ask the board for an explanation. Though something tells me that nothing will happen. Poor shareholders, they might reasonably think that directors are spending shareholders’ money to ensure that the board doesn’t get sued.

Or that the board thinks CEO is not up to job?

*Ernst & Young Solutions LLP (“E&Y”) is the financial adviser. “E&Y’s scope of work will include, among other things:

(a) advising and assisting the Group on suitable options for discussion with the holders of the Bonds (the “Bondholders”) and providing assistance on the development of a comprehensive debtrestructuring plan of the Company’s existing borrowings and liaising and negotiating with the Bondholders in connection with the debt restructuring exercise; and

(b) undertaking a business and financial analysis on certain related matters.”

“The Company has also appointed Stamford Law Corporation as its legal adviser to act for the Group in relation to matters arising from the debt restructuring.”

In the middle of March, BT reported that the CEO declined to comment on the S$14 million cash reserves the group’s former executive directors claimed to have kept in a Xiamen bank, saying: “We haven’t sent the auditors in yet, so I don’t want to make any comments on the cash as that could be quite misleading.”

Have the auditors gone in yet? And if not, when? Sin0-E shld be telling its shareholders.

[Update on 18 April 2010 — Co says money is there and that it has been secured]

As a group of managers have asked for the opportunity to subscribe for 20% or more of the group’s issued paid-up capital in the form of new shares, shareholders could be reassured that there is value in Sin0-E, something that the CEO was quick to point out. But they should worry that this request was tied to a pledge of support to the new directors.

The ST suggested that S-Chips should deposit their cash in in DBS, OCBC or UOB and not Chinese banks. This could reassure investors that the S-Chips’ cash were safe. This would in turn help the shares to trade above their net cash per share.

Err might not be a gd idea. Forget about the practical reasons like

— the companies not having the cash they claim they have; or

— withdrawing the cash after depositing it for reporting purposes and deposting it again just before the next reporting date. To prevent this the banks would need clear mandates to report such actions, and manpower and systems to track such movements.

It could be that the investors are (or will be) concerned that the cash could be used up in unprofitable businesses. Chinese dot.com companies listed on Nasdaq were trading below their net cash positions after the dot.com bust. Investors rightly assumed that they would not see the cash.The cash would be used to fund internet ventures etc. Anything else except be returned to shareholders.

I’ve always wondered why SIAS had been quiet on the lack of news from Sino-E’s board on what was being done to protect the assets and business of the company. I had tot that maybe company had quietly assured SIAS that things were in motion but that publicity could cause problems.

So I was surprised to read in Wednesday’s papers that SIAS had gone public on Tuesday, saying it had asked asked questions since December, but had been ignored. ST also reported that Sino-E had responded in a sense. No wonder it didn’t earlier reply or inform shareholders, the news is not reassuring. Bugger-all has been done other than reconstituting the board and appointing a CEO. Production has ceased, and the cash has not been secured.

Though to be fair, the board is S’pore-based, while business, assets are in a faraway district in a faraway province from Beijing or Shanghai in China. And the board could could argue that since the shares are still suspended, there was no need to upset shareholders with the bad news.

Let’s hope that SIAS has learnt that a nicely, nicely approach could be taken as a sign of weakness and impotence. More and louder growls, pls. If nec, howls pls. Wolves are feared: lap dogs and toothless mutts are not. As MM has said, S’poreans needed to be spurred.

Just before CNY, Sino-Environment annced that one of the directors had become CEO.

Well and gd that co has a CEO.

But if I were a Sino-E investor, I still want to know the state of the businesses, whether the assets are still there, and if the assets are being looked after properly. In short whether the new board is in control on the ground in China.

Board, if you are helpless, say so leh? No shame telling shareholders that with you in S’pore and assets and business in a far away province in distant China. Even the Chinese emperors admitted that there were parts of China where they could do bugger-all.

If I were a small shareholder, I’d need some more information on what is happening.

Following last Sunday’s announcement that the three executive directors (EDs) had resigned, the independent directors (IDs), by then the only remaining directors, said mid-week they had made three new board appointments and re-appointed the former financial controller. Two were IDs and one was a non-executive.

But till time of this post, nothing has been heard about who is managing the company in the absence of the CEO or any ED in China. And if no one is managing, who will manage it and when? Waz the point of all these directors based here? Everything of value is in China.

The IDs should be telling shareholders what they are doing to ensure that the assets of the company are not plundered or the business is not misrun in the absence of the EDs. If there are already gd managers on the ground, shareholders should be told. If there are none, why were there no plans for managers to replace the EDs? After all the IDs were seeking to remove the then EDs. And when will the new managers are expected to be in place? Shareholders need this information.

Surprised

SIAS not publicly commented on this;

SGX not publicly querying company; or

none of the usual corporate governance pundits are even raising this issue.

But who knows, maybe behind the scenes? Somehow I doubt it.

Is all this corporate governance activity by the two IDs and talk by others, Wayang or shadow puppetry in its most sophisticated form?

A small shareholder might very well think that. I couldn’t possibly comment

After the Chinese police refused to proceed against the chairman as requested by the independent directors, the three executive directors resigned, leaving no-one to run the company. This mass resignations seems to be taunting the IDs as they are resigning after a favourable police decision. They had refused to resign for months and the IDs had to get a court order to call for an EGM to remove the EDs.

Adding insult to injury, the company said IDs “will continue to keep shareholders updated of all material developments”.

Err … But when BT asked the IDs for comments, they said that they are seeking to clarify the situation before issuing any response. As at the time of this posting, no annc has been made by the IDs.

They must be confused and worried because with the EDs resignation, no-one is managing the company. And some workers are threatening to strike over the IDs actions. And they could be sued by the chairman and shareholders.

Great way to start 2010.

They have the responsibilities and powers of directors but are powerless in reality. The co’s assets are in a far away province of a far away China. Taz the reality.

Well there is now an annc on company’s site saying that that the chairman had been cleared by the Chinese police of allegations made against him by the IDs.

Ouch! This is not good news for the IDs. It undermines the allegations that they are making against the EDs. As the Chinese docs are dated 25 Dec, maybe they knew about it and hence did not call EGM.

If I were an ID, I’d be concerned about the chairman suing, whether I have the appropriate insurance policy, and whether PwC can be sued. I”m sure PwC are consulting their lawyers and checking their insurance policies.

Wonder what SIAS will now say? They have been supportive of the IDs actions.

All goes to show: Taking an IDship in a company listed in one country, domiciled in another with assets in a third where there are problems with the rule of law is not to be taken lightly. It, like investing, in such a company can be the stuff of nightmares.

But having gone to court, this silence from the IDs is deafening, and should worry the punters (sorry investors) in this stock. But then it seems the retail shareholders of this company are extremely passive. It took the IDs to get an order of court to hold an EGM, while the efforts of some shareholders (I salute them) to organise an EGM came to nothing.

They should realise passivity has its price. Ask those investors in minibonds, and HN5, Jubilee and Pinnacle notes.

As lawyers who are fans of MU should know,when MU (when it was a listed company) became the target of a highly leveraged buy-out offer by the Glazers, the directors sought legal advice on their duties towards shareholders and MU.

They were advised that directors owe a duty to the company and not its individual shareholders. In many instances, the distinction is not significant, since what is good for the corporation will also benefit its shareholders. Maximising the return to shareholders (or creating “shareholder value”), in many cases, does not conflict with the interests of the company.

But there may be situations where the interests of the company and shareholders may conflict.

The interests of shareholders may lie in realizing a short-term gain on their investment, something which the directors may decide is not the in the interest of the company in the long term. For example, the debts that MU incurred in going private, might have prevented the club from buying the players MU needed to win trophies. It didn’t happen at MU; despite its debts MU has the wagga (dosh) to buy players. But the example of Liverpool FC shows that this fear was reasonable and legitimate.

The interests of majority shareholders may not also be the same as the interests of the company. Controlling shareholders may want the corporation to take certain action that may be in its interest, but not necessarily in the best interests of the corporation. Hedge funds, with a controlling stake, may want the company to pay a high dividend because they (the controlling shareholders) want to maximise the returns to their investors. But the company may need the cash to expand its production lines.

The correct answers to these kinds of issues depend very much on the facts of each situation: something the independent directors of Sin0-Environment are finding out the hard way.

SIAS has said that the share register of Sino-Environment is open, with no controlling shareholder; correcting my presumption that the EDs and connections could still control the company.

SIAS goes on to urge “minority shareholders to turn up in force at the EGM to support the Independent Directors (IDs) as their combined votes are important to ensure that the proposal to remove the EDs wins shareholder approval.” (A quibble here: If there is no-one or group with a controlling interest, how can there be “minority shareholders”? SIAS must mean “small shareholders”. Sorry it’s the lawyer in me.)

On a very serious note: What are the implications, if at the EGM, there is a majority who vote against the removal of the EDs?

What happens when shareholder democracy clashes with possible corporate misdeeds? Remember, unlike directors (who have to act in the best interests of the company), shareholders can act in their selfish interests. Shareholders who find themselves “at the wrong end of the stick” as the English expression goes, have to go to court to protect their interests. How will everything then play out?

When general Cornwallis surrendered to George Washington in 1781 (effectively ending the American Revolution), the surrendering British army’s band is reputed to have played “World Turned Upset Down”. If the EDS remain in office after the EGM, some assumptions of company law and the listing manual, may be founding wanting.

As someone interested in the intricacies of company law and the listing manual and how they interact, I selfishly hope that the EDs win.

I know, I know. No a charitable tot at Christmas, especially towards many of the shareholders of the company. But they have to live with the consequences of their actions or inactions. No-one forced them to buy this particular S-Chip.

So the court has ordered the executive directors of Sino-Environment Technology Group to call for an EGM to remove the EDs (bit like asking piglets to vote for Chinese New Year) from the company’s board.

As the public only has 43% of the vote, presumably the EDs and their connections control the balance. What if the EDs use these shares to block their removal? They have their rights too.

Possible moral of the story: be very careful in investing when the EDs and their connections have more than 51% of the votes.